Why has litigation funding been left out of the debate on suing the banks, asks Nick Rowles-Davies of Burford Capital.
Tucked away it the financial press recently were some key comments from Lord Woolf, one of the most high-profile legal figures in the UK. His words concentrated on an issue that has raged since the financial crisis – taking legal action against major institutions, and in the main, against banks.
The downturn has seen this to be a common theme and is something that I have commented upon frequently. As we know, a glut of major banks, both in the UK and US, have revealed major spending in their annual results for defending litigation brought against them by claimants. There has been a litany of cases, ranging from those routed in interest-rate hedges to rate manipulation. Cases have come thick and fast and continue to do so. Hundreds of millions of pounds and dollars have been spent going through court actions over the past five years.
A strong starting position
Lord Woolf is a former Lord Chief Justice of England and Wales. He now sits on the Panel of Recognised International Market Experts in Finance, a Hague-based committee that advises on legal issues in finance.His comments on litigating against banks, show that he accepts that banks have a strong starting position when it comes to defending litigation. More often than not, the claimant is a far smaller entity than the bank (after all, most entities are smaller, or have less financial clout). But he also suggested claimants can take them on.
In an interview with Financial News, Lord Woolf said: 'The world is an unfair place. We can’t ensure equality of arms……The legal system should ensure as far as possible that there is a level playing field between the mighty and the not so mighty.' Woolf added: 'It does seem the cards are stacked against the little man. But you can always find someone who will do his or her best for you..The bigger they are, the harder they fall.
To give some further background, Lord Woolf introduced the reforms in 1999 which sought to make litigation more accessible and less expensive and these are widely thought to have had a profound impact on civil justice – Access to Justice.Lord Woolf believes there is a level playing field when taking on the might of the banking world in the courtroom. This, he insists, comes from the fact barristers could be contacted independently of solicitors. He also believes claimants should look to smaller firms – and hire outside of the Magic Circle – when looking to redress the balance.
Odds stacked against small players
Lord Woolf’s comments are, in part, to be commended. However, there would be many who would agree with me in saying that the UK legal system, while better than most other countries, still stacks the odds against the smaller player. Barrister’s fees and court fees are hugely expensive, and the idea of going direct to a chambers without the buffer of solicitors is a frightening prospect for even the most motivated claimant.
Lord Woolf may not have been asked about too many alternatives but it is fair to say that by not mentioning one mechanism he has failed to provide the full facts of the various tools at the disposal of claimants. This omission is that of litigation funding.
His words in summing up the position of those wishing to take on the banks is almost a perfect summary of litigation finance, or Third Party Funding, in its purest form – it provides the financial back-up to claimants in taking on organisations which have done them wrong.
Lord Woolf also fails to mention the banks’ scorched earth policy – emptying their vast coffers into the suited pockets of high-powered legal teams whose numbers, and often experience, dwarves that of the lower paid team across the floor. Of course, the cost-budgeting element to the reforms put into place by another prominent legal figure, Lord Justice Jackson, are designed to curb this. But, a great imbalance is still possible.
Litigation funding left out of the debate
It is not a criticism of Lord Woolf that he did not flag up the mechanics and benefits of litigation funding. But the question must be asked why it has been left out of a debate it has every right to be central to? As I have mentioned before, I think the answer lies with the funding industry itself.
Burford is the largest litigation funder in the world and we are noticing a healthy shift towards understanding the opportunities provided by funding. It is a mechanism which is being used more and more often – again, there is evidence of this in what we are seeing at Burford.
But, I fear there is still some distance to be travelled before litigation finance naturally enters the discussion such as that which has been conducted by Lord Woolf. That baton is down for funders to pick up and run with as the industry continues to grow. The result will mean many more Davids being given access to the tools to defeat the Goliaths.